The Foundation Center – a not-for-profit organisation specializing in data processing and sharing for the purpose of philanthropy – held a conference on the use of the blockchain and Bitcoin for charitable purposes in San Francisco on 15 March. This connection might surprise many, given that the technology was initially associated with speculative finance. Friedrich August von Hayek, one of the founders of neoliberalism, who in 1976 published a book entitled The Denationalization of Money, is often regarded as the spiritual father of cryptocurrencies. In fact many libertarians, who embody an ultra-liberal, ideologically highly influential trend in the United States, have become advocates of digital currencies. There is, however, nothing illogical about applying blockchain and cryptocurrencies to the humanitarian sphere, given that the technology offers huge potential in terms of transparency, transaction security, and financing capacity.

In their book Blockchain Revolution, Donald and Alex Tapscott explain that the blockchain's apparent complexity is based on a very simple principle. It is in fact neither more nor less than a new type of database – a way of storing information in a distributed, rather than centralized manner, which means that every participant has a copy of the database on his/her computer, which s/he can examine and modify at will. But… if everyone has access to the database, how can you guarantee security? How can you for instance prevent malicious persons from hacking the blockchain so as to acquire the equivalent of billions of dollars in Bitcoin for themselves?

blockchain revolution underway

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Don't panic! Before being approved, every transaction first has to be validated by network participants known as 'miners', via a procedure based on the use of game theory in tandem with advanced cryptographic techniques. Security is therefore ensured by the actual people involved rather than by a central agency. Once the information has been entered, it becomes visible to all participants and cannot be deleted. Every blockchain update goes through a separate validation process, which generates a block of supplementary information – hence the term 'blockchain'. Everyone can follow the whole string of updates. As Donald and Alex Tapscott summarize in an article based on their book: "On the blockchain, trust is established, not by powerful intermediaries like banks, governments and technology companies, but through mass collaboration and clever code. Blockchains ensure integrity and trust between strangers. They make it difficult to cheat."

Raising funds in Bitcoin

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Blockchain technology opens up a whole world of possibilities in terms of philanthropy. Lots of social problems can now be addressed.

Paul Lamb

So far so good…but where's the link with philanthropic action? Paul Lamb, – a freelance consultant who advises not-for-profit organisations on how they could make use of the blockchain – explained: "Blockchain technology opens up a whole world of possibilities in terms of philanthropy. Lots of social problems can now be addressed." The blockchain is best-known for its main current embodiment – the virtual currency (or 'cryptocurrency') Bitcoin, whose creation, transfer and valuation are based on blockchain architecture rather than by a central bank. Bitcoin often makes newspaper headlines due to its highly volatile exchange rates and for the many stories of people who have become millionaires after making successful bets on its movements. However, this virtual currency also offers an excellent way of raising funds for charity.

the race for bitcoin

"Over the last few years an increasing number of charities and foundations have been trialling bitcoin donations. These include such well-known organizations as the Red Cross, Save the Children, United Way, the Wikimedia Foundation, and the Electronic Frontier Foundation", Paul Lamb points out, explaining: "Once established, an online 'wallet' allows charity institutions to accept bitcoin and other cryptocurrency donations and to exchange them for fiat currencies such as the dollar". Using cryptocurrencies means paying less in fees on the donations they receive, which consequently means they have more money available to achieve their goals. "In some cases, online wallet providers offer 0% processing fees for non-profits, compared to the 2% or more charged by traditional donation processors. This means that potentially 100% of donations can end up in the pockets of charity organisations or donation recipients. Bitcoin donations to charity are also tax-deductible", Lamb underlines. US philanthropy foundation Fidelity Charitable raised the equivalent of $69 million in donations in cryptocurrencies in 2017, up from a total of $7 million during the previous two years. Another sign of the trend is that we are seeing the emergence of crowdfunding platforms such as Bitgive, Bithope or Helperbit, which enable people to make donations inBitcoin to finance social-impact projects. A number of people who have grown spectacularly rich by investing in Bitcoin are also starting to get in on the philanthropy act. In December, for instance, an anonymous happy millionaire set up a Bitcoin-based fund called the Pineapple Fund, valued at $86 million, which she or he is planning to donate entirely to charity. The fund has to date given some $55 million to sixty different organisations.

Raising funds and financing social good through BITCOIN

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Tokens: exchange medium and financing tool

1400

crypto- curren cies

circulating online in january 2018

Bitcoin is of course far from being the only cryptocurrency in existence. In January 2018, there were as many as 1,400 different virtual currencies available on the Internet, and the number is growing constantly. This surge in the creation of digital currencies is partly due to the take-off of the Ethereum platform, which makes it easy to create decentralized apps based on blockchain technology. Each of these apps can then generate its own currency, often referred to as 'tokens'.

These tokens fulfill several different functions. Firstly, they are used to remunerate the miners who, as we saw above, help to ensure security on the network. Secondly, they serve as a means of in-app exchange. Just like in a casino, where you use tokens to play the slot machines or the tables and then exchange your stack for real money on your way out, tokens are a simple, practical way of making any given ecosystem work.

Last but not least, tokens are also used by blockchain businesses to raise funds from investors. This process is known as an Initial Coin Offering (ICO). They enable anyone who believes in the future of a particular venture to help finance it by buying the tokens issued. If the venture proves successful, the tokens will gain in value, and they can be exchanged for a cryptocurrency, such as bitcoin, or a traditional fiat currency, so that those who backed the project at the outset can reap their rewards. Tokens thus provide a fast, straightforward way of raising funds for innovative projects. ICOs that are based on tokens rather than on traditional currencies are not – for the moment at least – subject to regulation like the Initial Public Offerings (IPOs) traditionally used by companies to raise capital from the public.

Using tOKENS to build new socially-oriented ecosystems

So we are now seeing the increasing use of tokens to set up an ecosystem around a new philanthropy project. "This new-style economy enables NGOs and philanthropic foundations to set up their own monetary ecosystems in order to encourage donations, generate new revenue channels, foster transparency, and so on… This technology opens up a real universe of possibilities for charitable organisations", enthuses Paul Lamb..

L'Atelier recently reported on Watercoin WTR, a cryptocurrency used to finance the distribution of clean drinking water. Along the same lines, Clean Water Coin is a token designed to raise funds for the non-profit Charity: Water, whose mission is also to provide people with access to pure drinking water. Similarly, the goal of the RootProject is to combat poverty. Pre-sales of their token, the Root Coin, generated $400,000 in revenue – four times the initial target of $100,000 dollars. Paul Lamb also points to Aidcoin, a cryptocurrency designed to enable the general public to make donations to philanthropic organisations at lower cost, which has already generated the equivalent of several millions dollars.

This approach to financing projects is proving particularly popular among younger people. A recent report from the London Block Exchange, which specializes in the trading of cryptocurrencies, points to the increasing appetite among the Millennial generation, and even predicts that as many as a third of this age-group will be invested in cryptocurrencies by the end of this year. Meanwhile apps such as Power Ledger and SunContract enable people to use tokens to trade electricity on a peer-to-peer basis. In disadvantaged areas with poor infrastructure, this sort of system could help locals to obtain access to an electricity supply, and if a natural disaster should strike, enable people all over the world to make energy donations to the affected area.

'Mining', the process which enables the validation of blockchain-based transactions, can also provide a means of raising funds for good causes. Game Chaingers, a project set up by UNICEF, encourages video gamers –who very often own powerful computers – to rent out part of their machine's computing capacity to mine the Ethereum network, with a view to raising funds for children in Syria.

Identity protection

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Storing your identity on a blockchain

However, cryptocurrencies are more than just a convenient way of raising funds and creating a medium of exchange for philanthropic projects. By using the transparent architecture of the blockchain, they can also help to boost trust in charities and non-profits among the general public, who have become rather suspicious of such organisations. A third of all US Americans who responded to a 2015 survey revealed that they had no faith in the way these organisations work, in particular the way they use the money they receive. In fact, 2015 was the year a scandal affecting four US charities working to combat cancer hit the headlines. In each case the head of the organisation was found to have used donations for his own personal expenses.

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By making visible to all the way each and every dollar received by a given charitable organisation is used, the blockchain can help to boost public trust in the way these bodies operate. The GIveTrack platform is designed to do precisely that. Users can follow in real time the way funds donated to a particular project are used, track the progress made right through to its completion, and then observe the results achieved.

Last but not least, given that the blockchain provides a transparent, unalterable database, Paul Lamb believes that it could solve many identity and ownership issues. "Many people all over the world have neither identity papers nor ownership documents. That might be because they live in a poor country where administrative processes don't operate efficiently everywhere across the territory, or they might be refugees who have had to flee their country without being able to take anything with them. In both cases, not being able to prove your identity or produce titles to your property or academic diplomas makes its very difficult to participate in the economy, whether we're talking about opening a bank account, requesting a loan or applying for a job. Using the blockchain, all this information could be digitized and stored in an unalterable form."

Sweden and Georgia are currently trialling the use of a blockchain to register land titles and Ukraine and Ghana are also studying how they might implement this kind of system. All in all, the blockchain is far from being just a way of creating a new currency for geeks with an appetite for high-risk investments.

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